This article appears in The American Prospect magazine’s February 2022 special issue, “How We Broke the Supply Chain.” Subscribe here.
Grocery store owner Jimmy Wright spent months stocking up for the holiday season. Since the beginning of the pandemic, he had struggled to maintain inventory at his sprawling store in east Alabama, and as the holidays approached, he anticipated that annual favorites—hams, gingerbread men, pies—would be in short supply. To prepare for the shortages, he began stockpiling products in early November, spending $70,000 on top of the $250,000 he usually devotes to inventory. The investment paid off: Wright’s Market entered the holiday season with goods that were sold out elsewhere, like cream cheese and cranberry sauce.
But this was a bright spot in an otherwise bleak couple of years. Since the pandemic began, manufacturing slowdowns, worker shortages, and volatile demand have dogged the grocery industry, forcing grocers to find new ways to stock their shelves. “We’ve just had to be creative,” Wright said. “When a product was there, we’ve had to try to buy all we could buy.”
Customers still frequent Wright’s Market, which is located five minutes outside of downtown Opelika, a small city of 30,000 that borders Auburn University. But Wright, who has run the market since 1997, said it’s never been so hard to stock up on inventory, and that the process of simply getting supplies overwhelms his employees. “My meat department man will start at about 3:00 every afternoon on the phone, and it takes him until 6:00 each night to call suppliers and see who’s got this, who’s got that,” Wright said. “It takes him about three hours every day, when it used to be maybe 30 minutes before.”
Nearly every industry has suffered shortages from supply chain backups since the first COVID-19 outbreak in early 2020. Each link in the supply chain has frayed, and even though Americans spent more on goods since the pandemic than ever before, the snarls have inflated the costs of production and shipping.
Small businesses in particular have paid a steep price. A study by the Federal Reserve found that about 800,000 small businesses closed in the first year of the pandemic, about 200,000 more than the annual average. Restaurants, toy stores, booksellers, indie clothing brands, and hardware stores have strained for over a year to meet rising consumer demand. “I have a product that’s been on back order for over 500 days,” said John Ciferni, who owns Tarzian Hardware, a 100-year-old hardware store in Brooklyn, New York. “There are some products that are just gone, and you just have to find something else.”
Big-box stores, however, have circumvented many of the bottlenecks. Amazon, Walmart, and other giants have maintained their inventory by expanding logistics operations and striking deals with suppliers, allowing them to get products quicker and cheaper than their smaller rivals. Though the maneuvers keep consumers happy, small businesses have suffered: They wait longer for goods, pay more for shipping, and lose business as customers flock to big-box stores.
The rapidly consolidating market has broader implications. As the biggest players eliminate competition, workers earn less and communities lose key services. “The conventional thinking of the last 40 years is we don’t need small-scale producers and distributors because bigger is much more cost-effective,” said Stacy Mitchell, co-director of the Institute for Local Self-Reliance. “But it has drained the life out of local communities and created a kind of despair across many parts of this country that are struggling.”
SMALLER RETAILERS SIMPLY CANNOT COMPETE with their bigger rivals in a supply chain scramble. A case in point: Giants like Walmart, Home Depot, and Dollar Tree have chartered their own cargo ships to sail to smaller ports like Houston, Texas, and Everett, Washington, avoiding weeks-long waits at the heavily trafficked ports of Los Angeles and Long Beach. Walmart repurposed a vessel that usually carries grains in order to deliver toys to a dock outside the Los Angeles port last fall. Home Depot, whose executives jokingly pitched the idea of chartering a ship last spring, later hired several vessels to transport plumbing tools, holiday decorations, and other items. Between November 15 and December 20 alone, nine ships chartered by retail companies docked at U.S. ports, compared to zero during the same period in 2020, according to ocean freight analyst Steve Ferreira.
Large companies also carved out strategies to accelerate processing after the freight ships dock. Walmart has rented space for “pop-up” container yards near ports in Los Angeles and Savannah, Georgia, dedicated to getting their goods out. Dockworkers segregate Walmart containers, and truckers move them to their yard, so they don’t get intermingled with the dogpile of goods destined for other retailers.
One major retailer isn’t new to the world of ocean freight and transportation logistics: Amazon. The e-commerce giant obtained a license in 2016 to buy and sell cargo space on container ships traveling from China, and since then, it has transported over 200,000 containers across the Pacific, per Ferreira’s numbers.
Amazon has also been building its own shipping containers since 2018, giving it a boost amid a container shortage. While other retailers now pay up to $14,000 to ship a container from China to the U.S.—eight times the pre-pandemic cost—Amazon can rely on its own 53-foot units for both international shipping and domestic delivery.
Smaller retailers simply cannot compete with their bigger rivals in a supply chain scramble.
Amazon was well prepared for the supply chain logjams, not just because of its experience in ocean freight, but because of the billions it has invested into expanding its logistics footprint. In 2021, the company opened its first freight airport in Cincinnati and added 11 long-haul cargo planes to its fleet of 85 domestic air freight carriers. The new cargo planes avoid the ocean supply chain snarl entirely, flying directly from China to the U.S. The year before, it added 1,000 last-mile warehouses. And its fleet of delivery trucks to homes and businesses continues to grow dramatically.
Amazon is also well on its way to dominating domestic shipping: In 2020, the company shipped 21 percent of all U.S. parcels, more than FedEx, according to the Pitney Bowes Parcel Shipping Index. By early this year, Amazon expects to be the largest private package delivery service in the U.S. It won’t be long until Amazon eclipses the U.S. Postal Service. “Only the spam mail will come on U.S. Postal, but the rest will come from Amazon,” said Gad Allon, a professor at the Wharton School of Business.
Building a logistics empire isn’t cheap. Amazon has shelled out over $100 billion on shipping since 2018, and in the fourth quarter of 2021 alone, CFO Brian Olsavsky projected that Amazon would spend $4 billion on logistics, from growing its freight and shipping operation to hiring seasonal staff. The company has invested heavily in its workforce: Amazon has hired about 700,000 workers worldwide since 2018—nearly doubling the head count in less than three years.
This spending spree, coupled with rising supply chain costs, has eaten into Amazon’s profits, but profits can be found in other ways. Ultimately, Amazon seeks to expand its reach into each platform and service that enables commerce. Already, Amazon acts primarily as a retail platform rather than as a retailer: It makes most of its sales through third-party sellers on Amazon Marketplace, and it collects an exorbitant amount in fees by acting as a freight forwarder, advertiser, and delivery service for its sellers. “It might be that in a few years from now, Amazon may not carry any inventory, if anything. It will just do all the transactions beyond that,” said Allon.
Amid the supply chain disruptions, Amazon’s growing logistics operation has pressured third-party sellers to import their merchandise through Amazon’s global shipping service. Third-party fulfillment is lucrative for Amazon; the Institute for Local Self-Reliance estimated in December that the tech giant now takes 34 cents out of every dollar of their seller partners’ revenue, up from 19 cents in 2014. That cuts significantly into sellers’ operating profits. In addition, the service gives Amazon access to a seller’s pricing and supplier data, which Amazon has used in the past to sell competing products. But given the current constraints, sellers don’t have much of a choice. “If Kim Jong Un had a container, I might take it, too,” Lights.com owner David Knopfler told Bloomberg. “I can’t be idealistic.”
Amazon and other retail giants have been gaining market power for years, but the pandemic has accelerated their growth. While small businesses shuttered in 2020, the world’s 50 largest companies expanded their global reach, accounting for 28 percent of the world’s gross domestic product, a study by Bloomberg found. Between fiscal years 2020 and 2021, Walmart’s net sales worldwide jumped 7 percent, the company’s largest increase since 2007, while Home Depot saw the biggest surge in sales revenue it’s seen for at least 15 years.
Amazon expects to become the largest private package delivery service in the U.S. by early this year.
Unsurprisingly, these trends spell danger for mom-and-pop shops. Not only do small businesses lack the resources to charter boats or planes and overcome supply chain slowdowns, but many lose out when consumers change spending habits and begin to do all their shopping online. “What COVID did is accelerate consumer trends to the online space about ten years or so quicker than what the industry expected. So we’re kind of playing catch-up,” said Chris Jones, a senior vice president at the National Grocers Association.
While many small businesses stayed in the black throughout 2021—thanks in large part to the spike in consumer demand—shifts in consumer patterns could give big corporations even more leverage. Small businesses have little hope of attracting online customers outside of Amazon: Amazon products come up first in Google’s search results, and over 60 percent of Americans seeking to buy a product online begin their search on Amazon. The jump in online shopping during COVID will likely continue post-pandemic, driving traffic to Amazon. “People don’t start using e-commerce and then go back,” said Jason Murray, a former vice president at Amazon for nearly 20 years who now runs a logistics startup. “Anytime in e-commerce you see a transition [to online shopping], it tends to stick.”
EVERY HOLIDAY SEASON, Wright’s Market offers its customers deals on seasonal favorites. Before New Year’s Eve, the store’s promotional flyers advertised hog jowl, a traditional Southern New Year’s dish, for only $1.49 per pound. For Christmas, Cook’s Ham was $1.69 per pound. The promotions allow the store to buy products from major brands at a discount, and many of Wright’s seasonal deals remain year after year. Each Thanksgiving and Christmas, for example, the store advertises Duncan Hines Cake Mix, the most popular brand of cake mix in the area. In exchange, Wright pays $1.13 per box, down from the usual price of $2.20.
But customers can find the same cake mix at a nearby Walmart for $1 all year round. “I can’t even match their prices without losing money,” Wright said. “We may get a promotional price on an item once every quarter, maybe. Some of the big-box players, some of the dollar chains—they’re getting promotional pricing every single day of the week.”
Food suppliers have little choice but to comply when Walmart demands low prices. Although it’s not classified as a grocery store, Walmart, along with its subsidiary, Sam’s Club, is the largest grocer in the country. In 2019, the company controlled nearly a quarter of the grocery industry, while Kroger, the largest supermarket chain in America, controlled less than 10 percent. Walmart has even more power in more rural areas. A 2019 report by the Institute for Local Self-Reliance found that the company raked in more than 50 percent of grocery spending in 203 markets nationwide, including one out of every three non-metropolitan markets.
Walmart’s dominance gives it bargaining power suppliers can’t resist. For years, the company has pushed back against price increases and charged its suppliers fees for late deliveries. As the supply chain snarls tightened resources, Walmart has made even more demands.
In late 2020, the company sent a memo to its suppliers announcing that in early 2021, vendors who didn’t complete 98 percent of Walmart’s orders on time and in full would be fined 3 percent of the order’s cost. Walmart had already instituted fees for late or lacking deliveries in 2017, but its new rules—which increased the threshold from 70 percent completion to 98 percent completion in some cases—shocked Walmart’s suppliers.
Unable to miss deliveries or raise prices on Walmart, suppliers have had to hike up prices on smaller businesses to compensate. “Price increases have been coming in nonstop for the last three months,” said Mike McShane, an executive at URM Stores, a Washington-based food co-op that distributes food to independent grocery stores. “There’s probably ten to twelve increases coming on a daily basis.”
Walmart isn’t the only retailer that has siphoned off suppliers. In a call with investors in November, Home Depot’s president Ted Decker boasted about the company’s special relationship with its vendors. “We’ve been very pleased with responses from long-term supplier partners and in some cases, supplier partners saying, ‘We can’t service the industry. So we’d rather focus on the best partner,’” he said.
Many manufacturers have for years adjusted their businesses to cater to big-box players, something that the supply chain mess is exacerbating. For example, major toy makers have raised the amount buyers have to purchase from them annually in order to keep their account. Mattel currently requires businesses to buy a minimum of $20,000 worth of products a year—a price that’s too high for many smaller businesses. Fundamentally Toys, an independent toy store in Houston, Texas, typically buys $10,000 worth of Mattel toys per year, so after Mattel increased its annual minimum, its owners decided to close the store’s Mattel account in 2021. Already, Fundamentally Toys had struggled to sell its Mattel inventory at competitive prices. “We really can’t compete on Mattel products with big-box stores because they sell them for just a little more than what we pay for them,” said Cliff Moss, the store’s manager.
Small businesses enhance communities like Opelika, Alabama, home of Wright’s Market.
THE MARKET CONSOLIDATION OF TODAY harks back to the Gilded Age, when a handful of monopolies dominated the economy. Nineteenth-century corporations amassed power in familiar ways: John D. Rockefeller’s Standard Oil, for example, first bought up competing oil refineries, and then cut costs by streamlining its production and logistics processes. Standard Oil used its purchasing power to strike deals with railroads, which would transport its oil for a discount. The company’s tactics enabled it to undersell its competitors, but once it monopolized a local market—by 1900, it controlled 90 percent of all U.S. oil refineries—it raised prices on consumers.
Public pressure to reel in Standard Oil and other monopolies prompted Congress to enact the first federal antitrust legislation. The Sherman Act, which passed nearly unanimously in 1890, forbids competitors from conspiring to fix prices or rig bids that restrict competition in interstate or international trade, and prohibits companies from monopolizing a service through “unreasonable” methods. Although the law’s unspecific wording allowed many monopolies to evade prosecution, the legislation did lead to the breakup of Standard Oil, reviving competition in the oil industry.
Congress later strengthened the Sherman Act with a second law in 1914, the Clayton Act, that banned mergers threatening to reduce market competition. And in 1936, Congress passed the Robinson-Patman Act, which barred vendors from selling products to preferred customers for a lower price. The Robinson-Patman Act finally gave the government leeway to crack down on the special deals major retailers forged with suppliers. Between the 1940s and the 1970s, the government rigorously enforced the legislation: In one seminal case in 1948, the Supreme Court ruled that Morton Salt had violated the Robinson-Patman Act when it sold a product at a discount to five chain stores that could afford to make larger orders than smaller businesses.
But gradually, these laws have been defanged. Beginning in the late 1970s, a new school of thought from conservative economists at the University of Chicago reframed the goal of antitrust law. Its purpose wasn’t to protect small businesses and foster competition, the scholars argued, but to protect consumers from monopolistic business practices, primarily ones that drive up costs. This theory, called the consumer welfare standard, gave large corporations free rein, and has since permeated government and the courts. “Built into this ideology is the notion that bigger companies are inherently more efficient, and therefore, if your goal is to maximize efficiency and reduce prices, big is better,” said Stacy Mitchell. “Things that would have drawn scrutiny and prosecution at an early period are now considered as not just OK, but encouraged.”
The consumer welfare standard has made it exceedingly difficult for plaintiffs to prove antitrust claims. Now, in addition to proving that a company violated the Sherman Act, a plaintiff must also show that the defendant’s practices lessened overall output in an entire line of commerce. According to antitrust lawyer William Markham, the term “consumer welfare” is a misnomer, since the standard seeks only to protect a market from a substantial reduction in output caused by monopolistic or anti-competitive business practices. “The standard, properly understood, is not concerned with proving harm to consumers, but only with demonstrating a supposedly inefficient short-term allocation of resources in private markets,” said Markham. Meanwhile, federal enforcement of Robinson-Patman has waned to the point where it practically doesn’t exist as a legal matter.
The soaring costs of acquiring inventory we’re currently seeing in the economy have burdened small businesses even further, but the ways larger retailers are able to secure their own supplies compound the problem, creating a broader divide between the haves and have-nots.
Small businesses have had to center their business models around products or services customers would prioritize above cost and convenience. Many retailers have carved out niches. Wright’s Market specializes in meat, and sources some of its products from local meat processors. Many independent toy stores, including Fundamentally Toys, stock toys from smaller toy makers, which are often longer-lasting and more environmentally friendly than Barbies and Legos. In some industries, such as fashion and food, a movement toward ethical consumption and transparency has given newcomers an edge. But even when small retailers hone their specialties, they still have to work within a system dominated by big manufacturers and suppliers. “They’re embedded in a system that is highly consolidated and large-scale, so they’re always having to interface with parts of it that disadvantage them,” Mitchell said.
THE ELIMINATION OF SMALL BUSINESSES doesn’t just threaten small-business owners. It also affects workers, particularly the working class. As the majority of U.S. markets have become more concentrated, wages have fallen between 15 and 25 percent, studies have shown. And while some labor rights advocates have previously supported big companies for offering higher pay than smaller ones, that gap has since closed. Now, the bottom 50 percent of workers at large corporations earn about the same as employees at smaller companies.
Independent businesses are also a necessary ingredient for a more nimble and resilient economy. In the face of pandemic shutdowns and supply chain madness, some local food systems have adapted more quickly than national ones. Small businesses quickly pivoted to meet customers’ needs, allowing takeout or hosting live-streamed classes.
Unable to raise prices on Walmart, suppliers have had to hike up prices on smaller businesses to compensate.
A supply chain dominated by one manufacturer, distributor, or retailer is more likely to buckle because of a single challenge. While the Walmarts and Amazons of the world have managed to keep stocks robust, they have not been immune to shortages, and they’re always one disruption away from disaster. Paint suppliers, for example, have struggled to stock up on alkyd resin, a key ingredient in certain types of paint, ever since an Ohio facility that’s responsible for 30 percent of the material’s production closed after an explosion in April 2021. “There’s an adaptation that happens when you have diversity,” Mitchell said. “And the lack of diversity in our production and distribution system has hamstrung it in terms of being able to adapt.”
Locally, small businesses enhance communities. Their revenue is more likely to go back into the surrounding area, stimulating the local economy. When they close, not only does civic participation decrease, but locals are left without key products or services. In Opelika, Alabama, residents don’t have issues accessing necessary items, such as groceries. In addition to Wright’s Market, they can do their food shopping at Aldi, Piggly Wiggly, and an Asian specialty foods market, all within a five-mile radius of Wright’s. But residents of Hurtsboro, a town 30 minutes outside of Opelika, aren’t so lucky. Hurtsboro’s main street, once a bustling avenue, looks like a ghost town. One-story brick buildings line the street, displaying tattered awnings and the remnants of shop signs. Hurtsboro wasn’t always so quiet. “When I was growing up here, the town was thriving,” Hurtsboro’s mayor, Vivian Covington, told the Prospect. “On a Thursday, you could hardly walk downtown. Now, it’s dead all the time.”
Hurtsboro’s small-business closures have hurt residents acutely. About three years ago, the area’s only independent grocery store closed, forcing residents to do their grocery shopping at Dollar General, which doesn’t stock fresh produce or meat. Hurtsboro’s population of 600, along with its surrounding communities, now has to drive nearly 30 minutes to access a full-stock supermarket.
To help increase food access, the local government worked with Wright’s Market to open a mobile market in town that sells fresh produce and meat one day per week beginning in January. “Of course they would like to have a physical store down there,” said Wright, “but it’s just really difficult to make that work.”
The closure of small businesses, from pharmacies to toy shops to grocery stores, can lead to a town’s demise. As Wright put it, “When you start losing something like a grocery store, it just becomes a tailspin for small-town America.”
